European Affairs ®

Europe’s central bank announced last week it will taper its unprecedented stimulus by reducing purchases of debt (“lower for longer”) and holding interest rates steady, tactics calibrated to support Europe’s accelerating recovery, curtail the euro’s recent appreciation, and stoke inflation’s embers.

The Frankfurt-based institution will cut its monthly purchases of government and corporate bonds by half starting in January to $35 billion (€30 billion) and continue that pace until at least through September next year. Nearly three years ago, the bank began buying assets, including public and private bonds, to stabilize the euro, hold interest rates low, and pump more money into the economy. These “quantitative easing” measures augmented the negative interest rates the bank had set.[1]

The European Union recently proposed a framework for scrutinizing incoming foreign investments that may affect “public order” or “security,” a veiled initiative to address Europeans’ rising concerns over China’s state-owned companies acquiring EU-based businesses that are seen as key for Europe’s competitiveness in the global technology tsunami.[1]

In introducing the proposal in his state of the union address (September 13), the EU President Jean-Claude Juncker said it "strikes a smart balance between strengthening the EU's role where appropriate, a more coordinated approach and the preservation of member states' decision-making authority. The proposal promises to tackle potential national security issues.”[2] He assured Europeans he is not “a naive advocate of free trade,” a signal to those arguing that there is little reciprocity from China and other countries for accessing EU’s open markets.

On many fronts, Europe’s economy is strengthening as consumers become more confident, investment inflows accelerate, unemployment falls, and sovereign debt costs decline for the EU’s most troubled member-countries.

The prank election poster in white and red reads: “Okay, one more time Merkel. But then it’s enough. SPD”. The SPD, the Social Democrats, are the junior partner of the conservative CDU in the currently governing grand coalition - and they want anything but another four years with Chancellor Angela Merkel. Published by a German satire magazine, the spoof went viral on the internet. Why? Because in a nutshell it captures the dilemma of the SPD. As long as Angela Merkel is on the stage there does not seem to be a way around her. Merkel is set to win the national elections for a fourth time. And the SPD is set to lose, once again.

Banks, insurers, businesses and European Union (EU) agencies based in the UK are accelerating their moves to assure full access in the EU, the world’s largest financial-economic area. Their theoretical deadline is Friday, March 19, 2019, when Britain will be out of the EU according to EU Treaty rules, but practical hurdles make the real deadline mid-2018. The exodus of Brexit-generated refugees is also growing more urgent because the Tory government has failed to clarify its Brexit negotiating strategy during the 14 months since the fateful referendum. This policy vacuum is forcing companies to plan for the worst-case scenario – “hard Brexit.”